Lipsker v. Billings Boot Shop

288 P.2d 660, 129 Mont. 420, 1955 Mont. LEXIS 67

• Court: Montana Supreme Court
• Decided: October 5, 1955
• Docket: 9408
• Status: Published

Opinions

MR. CHIEF JUSTICE ADAIR:

This is an appeal from a judgment entered in an action of unlawful detainer.

Morris Lipsker and Frieda Lipsker, trustees under the will of Hyme Lipsker, deceased, and Frieda Lipsker, individually, plaintiffs and appellants herein, are the owners of the Babcock Building in Billings, Montana.

In 1951 said owners by a duly executed written agreement leased to Billings Boot Shop, a Montana corporation, defendant and respondent herein, certain ground floor and basement space in said building known and designated as 120 North Broadway for a term of five years from and after July 1, 1951, at a monthly rental of $250.

The lease agreement sets forth twelve consecutively numbered covenants the sixth whereof reading:

“And for the purpose of this lease it is hereby expressly covenanted and agreed as follows, to-wit: * * *

“6. That the lessee will not assign this lease, or any interest hereunder, and will not permit any assignment hereof by operation of law, and will not sublet the said premises or any part thereof, and will not permit the use of said premises by any other parties than the lessee and the agents and servants of the lessee, without, in each and every ease, the written consent of the lessors first had and obtained.

“The sale and transfer by the present stockholders of fifty per cent (50%) or more of the stock issued by the corporation shall be considered an assignment of this" lease and in violation of the restrictions of this paragraph.”

The instant action stands or falls upon the meaning and legal effect of the above quoted sixth covenant.

The lease agreement was originally made with the defendant Billings Boot Shop, a corporation, which corporation from the beginning was and still is the lessee of the demised property.

At the time the lease was entered into there were but 213 shares of the capital stock of Billings Boot Shop, the defendant lessee, issued and outstanding same being held as follows:

L. S. Wolcott 187 shares

Frances E. Wolcott, his wife 1 share

Frank Strickland 25 shares

Total 213 shares

Shortly after the lease was entered into L. S. Wolcott decided to withdraw from the business. With this end in view Wolcott, Strickland and Billings Boot Shop, the lessee corporation, agreed Wolcott would transfer to the Billings Boot Shop all the outstanding shares of stock held by him (Wolcott) and his wife for a consideration of $9,702.70 in cash and the cancellation by the Billings Boot Shop, a corporation, of an indebtedness of $9,-552.27, owed by Wolcott to such corporaiton.

Under date of November 6, 1951, the Lipskers, who executed the original lease agreement with the Billings Boot Shop, made and gave their written consent to the above transfer which consent reads:

“Consent to Remodeling and Reorganization

“We, Morris Lipsker, Executor and Frieda Lipsker, Executrix of the Estate of Hyme Lipsker, deceased, having heretofore on the 1st day of September, 1951, entered into a lease agreement with Billings Boot Shop, Incorporated, a Corporation of Billings, Montana, agree as follows:

“1. It is understood that L. S. Wolcott intends selling his corporate stock to the corporation and retiring said stock retaining only one share of said corporate stock and his directorship in said corporation, and in accordance with the terms of the lease, the transfer of this stock might be considered as a breach of the covenants thereof. We, therefore, agree that the transfer of the stock of L. S. Wolcott to the corporation, the same to be retired by the corporation shall not be considered a breach of said lease and consent to this transfer.

“2. We further understand that the corporation intends certain remodeling consisting of closing in the present stairway, constructing a new visible front to the building and contemplates the installation of new furniture and fixtures consisting of shelving, rugs and furniture, and we hereby consent to this remodeling.

“In witness whereof, We have hereunto set our hands this 6th day of November, 1951.

/s/ Morris Lipsker

Morris Lipsker, as Executor

/s/ Frieda Lipsker

Frieda Lipsker, as Executrix”

Following the execution of the above written consent the L. S. Wolcott shares of stock were cancelled and retired and of the 25 shares originally issued to him Frank Strickland transferred two shares to his wife, Ethel Strickland, and one share to L. S. Wolcott. The remaining 22 shares were retained by Strickland.

To finance the acquisition of Wolcott’s shares, the remodeling of property and the purchase and installation of new furniture, Billings Boot Shop borrowed from Shoenterprise Corporation of St. Louis, Missouri, the sum of $26,500, which loan was evidenced by a note secured by a pledge agreement under which all the twenty-five shares of stock issued and outstanding of the Billings Boot Shop were pledged as security for the payment of such loan and Strickland, his wife and Wolcott endorsed in blank and delivered their said certificates of stock, representing all the issued outstanding stock of Billings Boot Shop, the lessee corporation, to said Shoenterprise Corporation to hold as security.

Upon making the above loan the Billings Boot Shop, Strickland, Ms wife and Wolcott executed an agreement with said Shoenterprise Corporation to the effect that said Boot Shop will engage in the retail shoe business at Billings, Montana, and conduct such business strictly according to the requirements of the Merchant Service Department of International Shoe Company. It appears that the Lipskers did not consent to the above pledge of the stock and that they had no knowledge of it.

In late January or early February 1953, when Billings Boot Shop was not otherwise in default, Shoenterprise, deeming itself insecure, and acting under the insecurity clause in the note, declared the balance due. Payment was not made and on February 28, 1953, Strickland, his wife and Wolcott all resigned as officers and directors of the Boot Shop and surrendered their shares to Shoenterprise and its nominees in full satisfaction of the outstanding indebtedness.

The lessee corporation Billings Boot Shop has made timely tenders of all rent due since this controversy arose but the plaintiff lessors have refused such tenders.

On February 28, 1953, the Shoenterprise Corporation executed a receipt to Mr. and Mrs. Strickland and Wolcott for their 25 shares of stock and stated therein that said promissory note for $26,500 was cancelled.

Since February 28, 1953, Billings Boot Shop, the lessee corporation, has been and now is in the control of said Shoenterprise Corporation, which is now the holder of all the issued and outstanding stock of said Billings Boot Shop, and since February 28, 1953, neither Strickland nor his wife nor Wolcott have had any share or interest in said Billings Boot Shop.

On March 3, 1953, the Lipskers caused a written notice to be prepared and on March 4, 1954, caused the sheriff to serve same upon the Billings Boot Shop, which notice reads as follows :

“Billings, Montana

“March 3, 1953

‘ ‘ To the Billings Boot Shop, a corporation

“120 North Broadway

“Billings, Montana

“Gentlemen:

“Beference is made to lease dated September 1, 1951, between Morris Lipsker and Frieda Lipsker, as executors of the estate of Hyme Lipsker, deceased, and you covering premises in Babcock Building, Billings, Montana, known as 120 North Broadway, and particularly to the second paragraph of paragraph 6 of said lease which provides:

“ ‘The sale and transfer by the present stockholders of fifty per cent (50%) or more of the stock issued by the corporation shall be considered an assignment of this lease and in violation of the restrictions of this paragraph.’

“We are informed that there has been a transfer by Frank Strickland and his wife of their stock in the Boot Shop in satisfaction of certain indebtedness, which stock at the time of transfer constituted more than 50% of the issued and outstanding stock of the Boot Shop.

“We have not consented to such a transfer and we consider such a transfer a violation of the terms of the lease resulting in a termination of the lease.

“We, therefore, give you notice that if such a transfer has occurred, you are required to surrender possession of said premises within four days after the service upon you of this notice, excluding the date of service.

“If such a transfer has not occurred, please furnish us reasonable proof within that time that no such transfer has been made.

‘ ‘ If you fail to furnish such proof or if you fail to surrender possession within the time specified, we shall assume such transfer has occurred and shall hold you for damages for unlawful detainer.

“Yours very truly,

Morris Lipsker and Frieda Lipsker

Trustees under the will of Hyme Lipsker.

/s/ Morris Lipsker

Morris Lipsker

/s/ Frieda Lipsker

Frieda Lipsker

“Frieda Lipsker, Individually

By /s/ Frieda Lipsker”

“P.S. We are returning herewith your check dated February 21, 1953, for March rent.”

On March 28, 1953, a similar notice addressed to the Billings Boot Shop was written by counsel for plaintiffs and served by the sheriff on the Billings Boot Shop. The notice stated that if possession of the property was not surrendered on or before three days from the date of such notice, an action will be commenced against the lessee corporation to recover the premises and damages.

Possession was not surrendered by the Billings Boot Shop and on April 7, 1953, the plaintiffs and appellants herein commenced in the Justice Court of Billings Township before Emil Borberg, Justice of the Peace, this action of unlawful detainer. Upon a trial had before a jury in his court, said justice of the peace assumed to “direct” a verdict for the plaintiff lessors and then entered judgment for plaintiffs ordering the defendant lessee to surrender possession of the leased property and to pay damages at the rate of $250 per month from March 1, 1953. However the justice of the peace declined to treble such dam-’ ages. From such judgment the defendant appealed to the district court of Yellowstone County where, upon the agreed case submitted, the, district court found and entered judgment for the defendant lessee from which judgment the plaintiff lessors have appealed to this court.

The briefs of both the appellants and the respondent disclose that this entire ease depends upon the construction of the above quoted sixth covenant of the lease and upon whether the agreed ease shows a violation by defendant of such sixth covenant.

It is agreed that at the time the Shoenterprise Corporation decided to declare the unpaid balance due on its loan, the defendant Billings Boot Shop was not in default and also that it had made timely tenders of all rent due which were refused by the plaintiff lessors.

R.C.M. 1947, section 58-212, provides: “Conditions involving forfeitu,re — how construed. A condition involving a forfeiture must be strictly interpreted against the party for whose benefit it is created.” See Finley v. School District No. 1, 51 Mont. 411, 416, 153 Pac. 1010; Henderson v. Daniels, 62 Mont. 363, 373, 205 Pac. 964.

The construction of the sixth covenant of the lease, in the light of the above statutory rule, wholly fails to show any voluntary assignment of the lease that is violative of such covenant.

The transfer of the 187 shares of stock of L. S. Wolcott to the Billings Boot Shop, to be cancelled and retired by said corporation, was not an assignment of the lease and such transfer was made with the express written consent of the plaintiff lessors as shown above. Compare Ser-bye Corporation v. C. P. & G. Markets, 78 Cal. App. (2d) 915, 179 Pac. (2d) 342, 345; Burrows Motor Co. v. Davis, D.C. Mun. App., 76 A. (2d) 163, 165; Wagner v. Shapona, 123 Cal. App. (2d) 451, 267 Pac. (2d) 378, 385; Alabama Vermiculite Corp. v. Patterson, D.C., 124 F. Supp. 441, 445.

The landlord’s consent to the assignment of a lease obviates-, the necessity of consent to subsequent assignments. Aste v.. Putnam’s Hotel Co., 247 Mass. 147, 141 N.E. 666, 667, 31 A.L.R. 149 and note at page 153.

In the Aste case, supra, the court said: ‘ ‘ The principal exception taken by the defendant was ‘to the ruling of the court that, where consent had been given to one assignment of the lease, no> other consent was necessary, and that there was no necessity to get written consent thereafter.’ ” Citing a number of cases in support of such statement.

The Aste case, supra, is followed in Barber v. Hyder, 52 N.M. 421, 200 Pac. (2d) 717, 719, and in Webb v. Jones, 88 Cal. App. 20, 263 Pac. 538, 541. In the Webb case, supra, the court said: “In relation to assignments by lessees under a lease containing a covenant against assignment without consent such as found in the lease under consideration, our courts have held that the covenant is personal, binding only upon the lessee, and does not run with the land. Such consent once given by a lessor discharges the covenant, and subsequent assignments may be made without such consent unless there is appropriate language in the lease making the covenant binding upon the subsequent assignees. Miller v. Reidy [85 Cal. App. 757], 260 Pac. 358, and cases cited therein. See, also, Ericksen v. Rhee, 181 Cal. 562, 185 Pac. 847; Rothrock v. Sanborn, 178 Cal. 693, 174 Pac. 314.”

In Crowell v. City of Riverside, 26 Cal. App. (2d) 566, 80 Pac. (2d) 120, 123, the court recognized the rule as stated in the above cases and said: “As applied to assignments of leases, we understand this doctrine of single or continuous conditions to mean substantially this: that where a lease contains a covenant by the lessee not to assign without the lessor’s permission and provides that a violation thereof shall entail a forfeiture, but such covenant is not, in terms, stated to be binding on the lessee’s assigns, or on the lessee’s heirs, successors and assigns, there the covenant is said to be single, that is, to inhibit no assignment other than one by the lessee. In such a case, therefore, if the lessee obtains permission to assign, and does so, his assignee is under no inhibition to make further assignments because the original lease only inhibits the original lessee from assigning and does not by its terms inhibit his assignee from doing so. Chipman v. Emeric, 5 Cal. 49, 63 Am. Dec. 80; German American Sav. Bank v. Gollmer, 155 Cal. 683, 102 Pac. 932, 24 L.R.A., N.S., 1066.”

Appellants lay much stress on the last sentence of the above quoted sixth covenant of the lease. However such last sentence limits the sale or transfer, “by the present stockholders of fifty per cent (50 %) or more of the stock issued” in order to be considered an assignment in violation of the restrictions of the covenant.

As shown above, on September 1, 1951, at the time the lease was entered into there were 213 shares of stock issued and outstanding of which L. S. Wolcott owned 187 shares. Fifty per cent of these 213 would be 106% shares of stock. However, the agreed case shows that on November 6, 1951, the plaintiffs made and executed their written consent to the selling by Wolcott of 187 shares of his stock to Billings Boot Shop, the defendant corporation.

The remaining 25 shares of the stock of the defendant corporation owned by Strickland, his wife and Wolcott were pledged by them to the Shoenterprise Corporation on November 12, 1951, as security for the payment of a promissory note for $26,500 but such pledge did not constitute a violation of the provisions of the last sentence of the sixth covenant of the lease, especially when, as shown above, the Shoenterprise Corporation, in February 1953, when the defendant was not otherwise in default deemed itself insecure and declared the balance of the note was due, whereupon the three directors of the defendant corporation resigned as officers and surrendered their 25 shares of stock to the Shoenterprise Corporation in full satisfaction of their indebtedness to it. This transaction did not constitute a violation of the last sentence of said sixth covenant as it was not a sale and transfer by 50 per cent or more of the stockholders who signed said lease in September 1951. The transaction were merely a surrender of the 25 shares of stock that had been pledged as security for the payment of the $26,500 loan, made to finance the purchase by defendant of the 187 shares of stock owned by Wolcott and to finance the remodeling of the store and the acquisition of new furniture for the store. By such demand for payment the Shoenterprise Corporation became the owner of the 25 shares of stock but still left the defendant Billings Boot Shop in possession of said store and business and Billings Boot Shop continuously remained in possession of said building and store until the action for unlawful detainer was commenced by plaintiffs on April 7, 1953, and since such time such defendant corporation lessee had and has made timely tenders of all rent due up to that time which tenders were refused by plaintiffs.

Upon filing in the district court of the agreed case and the briefs of counsel for the respective parties the district judge made and filed, at the time of entering the judgment in favor of the defendant, a memorandum opinion reviewing the agreed facts which memorandum, in part, recites:

“In such a case, the courts, as well illustrated by decisions cited in the briefs, have held that forfeiture of rights under leases, are not favored and such agreements for forfeiture must be strictly construed. Whatever may have been the intention of the parties, at the time the lease was made, we must be governed by the language used, and cannot put into that language something which is not there. There were 213 shares of the capital stock of the defendant ‘issued and outstanding’ at the time the lease was entered into. (See first Paragraph, Page 2, Agreed Statement.) Under the lease, the sale and transfer of more than 50% of the stock must be made by ‘the present stockholders.’ The stock referred to, unless we resort to speculations, must refer to the stock issued at the time the lease was made. In view of the strict construction required and of the fact that forfeiture is not favored, I can come to no other conclusion than that under the strict terms of the lease, there has been no sale and transfer by the ‘present stockholders of 50% or more of the stock issued by the corporation’ referring to the time of the lease, except the sale by Wolcott, which was approved and consented to by the plaintiffs. As repeatedly found in the cases cited, the rule is well settled that a forfeiture may never take place by implication, but must be effected by plain, unambiguous language. ’ ’

It is clear that the pledge of the 25 shares of stock by defendant to the Shoenterprise Corporation, when so demanded for security on said $26,500 note, was an involuntary transfer and not an assignment, sale or transfer constituting a breach of the sixth covenant of the lease. Also the surrender of said stock when demanded by said Shoenterprise Corporation was an involuntary transfer.

In 3 Thompson on Real Property, section 1431, page 665, it is said: “Effect of Transfer by operation of law. — It is universally held that a provision restraining the assignment of a lease includes only voluntary assignments, and is not operative against an assignment effected by law, or through an order of court. So, an ordinary covenant against subletting and assignment is not broken by a transfer of the leased premises by operation of law * * * ” See also 51 C. J.S., Landlord and Tenant, section 33d (2), page 545; 32 Am. Jur., Landlord and Tenant, section 335, page 300; Chapman v. Great Western Gypsum Co., 216 Cal. 420, 14 Pac. (2d) 758, 760, 85 A.L.R. 917; Miller v. Bankers’ Mortgage Co., 130 Kan. 543, 287 Pac. 618; McDonald v. Farley & Loetscher Mfg. Co., 226 Iowa 53, 283 N.W. 261, 263.

The judgment of the district court was “that the plaintiffs take nothing by this action and the defendant have and recover his costs herein as provided by Section 93-9502, R.C.M. 1947 * *

The record shows the costs of defendant, prior to the trial were $10.

Finding no reversible error herein the judgment is affirmed.

MR. JUSTICE BOTTOMLY concurs.